This chart of Eurozone credit risk pricing attracted a lot of interest when I originally posted it, and it remains extremely topical, so I thought I would do a quick update. The chart shows the z-score (standardized values) of high yield corporate credit spreads and the spread between the average 10-year government bond yield for the Eurozone vs Germany. Again, what stands out to me on this chart is how relaxed credit risk pricing has become, certainly relative to what we’re seeing in sovereign risk pricing. As I mentioned previously, risk flareups in Europe often take at least a couple of months to run their course, so I am taking a cautious stance on Eurozone risk assets for the time being (particularly when you add the softer earnings/macro pulse to the picture).
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